Restrictive covenants are designed to protect both the bondholder and the issuer even though they may constrain the actions of the firm's managers. Such covenants are contained in the bond's indenture.

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Quizplus · Accepted Answer

Restrictive covenants are indeed included in the bond indenture to protect both the bondholder and the issuer. Although they may limit the firm's managers' freedoms or actions, they are vital for maintaining the credit quality of the bond and ensuring that the issuer can fulfill its obligations to the bondholders.

Restrictive Covenants Are Designed to Protect Both the Bondholder and the Issuer